A fixed budget is a budget that is set to an amount. Unlike a flexible budget, it isn't based on variables such as revenue, volume of work or results. Teams with a fixed budget view the budget as a constraint and do what they can with their resources. This may encourage efficiency and productivity. However, a fixed budget may also result in missed opportunities or poor organizational performance if work volumes greatly exceed resources. The following are illustrative examples of a fixed budget.
AdministrationAdministrative functions such as accounting and human resources may have a fixed budget as they are somewhat isolated from the short term effects of business volumes.
Customer SupportA customer support team has a fixed budget for two shifts of 12 people and one shift of 4 people each day of the year. The firm has a product failure resulting in surging call volumes and has no pool of resources to respond to the increased volumes. As a result, wait times for customers peak to unreasonable levels.
Information TechnologySome firms assign a fixed budget to information technology functions. It is common for the pool of capital technology projects under consideration to far exceed this budget. As such, a fixed budget forces a firm to prioritize technology spend.A sales team may be granted a fixed budget for salary and incentives. For example, incentives may be set at $2 million for a year with the money going mostly to the top 20% of the team in terms of results. In this way, incentives are capped in a year when a product is selling effortlessly. Incentives also do not decline when a recession or competitive pressures make sales harder to achieve.
ProgramsIt is common for programs in the public and non-profit sector to be allocated a fixed budget for a year. This may represent a significant constraint if the program is addressing a large scale problem with a relatively small budget.
This is the complete list of articles we have written about knowledge management.
If you enjoyed this page, please consider bookmarking Simplicable.
© 2010-2023 Simplicable. All Rights Reserved. Reproduction of materials found on this site, in any form, without explicit permission is prohibited.
View credits & copyrights or citation information for this page.